Eliminating Counterparty Risks and Inefficiencies from Financial Transactions

Introducing the Hold Module, a Groundbreaking Innovation from Provenance Blockchain

In the ever-evolving landscape of financial services, blockchain technology continues to redefine the way we conduct transactions. One noteworthy advancement in this domain is Provenance Blockchain’s groundbreaking Hold Module. This private API has been engineered directly into the protocol, and it’s poised to revolutionize the financial asset lifecycle by reducing the need for smart contracts, resulting in faster and more secure transactions. In this article, we’ll explore the unique capabilities of the Hold Module, its advantages over smart contracts, and its potential to streamline financial transactions for professionals in the field.

Understanding the Hold Module

The Hold Module is designed to address a fundamental challenge in financial transactions — ensuring that counterparties possess the necessary assets to complete a transaction. It functions in a manner akin to a hotel placing a temporary hold on your credit card when you check in. This hold merely reserves the ability to collect funds if deemed appropriate at the end of your stay. Similarly, the Hold Module places a temporary freeze on counterparties’ assets until it is deemed appropriate to complete the transaction. The remarkable aspect of this innovation is that, and especially for long running transactions requiring additional coordination and checks performed, the assets posted do not need to be in an escrow account. Said differently, no third party sits in the middle (e.g. intermediary or smart contract) of the transaction.

An additional benefit, specifically for long running transactions is that the Hold Module enables the account holder to maintain the benefits associated with their asset while the transaction is in progress. For instance, if the asset owner retains the ability to earn interest on a token while the transaction is in progress.

Comparing Hold Module with Smart Contracts

To complete most financial transactions on blockchain technology requires a smart contract. To appreciate the significance of the Hold Module, let’s contrast it with the traditional approach of using smart contracts.

Smart contracts are business logic written as code and contributed to the blockchain protocol. These contracts define predetermined criteria that, when satisfied, trigger specific actions. Unlike traditional contracts that require human intervention for enforcement, smart contracts automatically enforce the contract rules on behalf of the involved parties.

Smart contracts themselves act as intermediaries, taking control of the your assets during the transaction process, and introducing fees, overhead, and potential risks into the transaction process:

• Gas Fees: Smart contracts result in incremental gas fees, much like traditional intermediaries. Moreover, they demand additional network resources, increasing gas fees.
• Security Risks: Smart contracts can introduce vulnerabilities that require costly auditing and maintenance. Immutability of deployed smart contracts can be problematic if there are bugs or vulnerabilities.
• Upgradability: Maintaining and upgrading smart contract code can be complicated and expensive, posing potential risks related to compatibility and data security.

As a result of acting as an intermediary, smart contracts create an extra transfer step in the transaction process, and may also introduce extra bookkeeping activities.

The Hold Module, on the other hand, eliminates the need for smart contracts to verify counterparties’ assets and ensures that assets remain under their control until the transaction is completed. This novel approach not only expedites transactions, but also minimizes the potential pitfalls associated with smart contracts.

From the perspective of two counterparties during the transaction

From the perspective of a Marketplace or Asset Issuer

Provenance Blockchain’s Hold Module reduces the need for intermediaries, such as the use of smart contracts. By leveraging the protocol directly, users are able to remove complexity, costs, risk, an extra transfer step and any extra bookkeeping required, and streamline the transactions. The Hold Module represents a significant step forward in blockchain technology for financial services, offering a necessary and more secure and cost-effective alternative to smart contracts, aligning perfectly with the industry’s need for reduced risk, greater efficiency, and trust.

Provenance Blockchain is modernizing financial services with properly permissioned, public blockchain technology. Since 2018, leading financial institutions and fintechs have leveraged the purpose-built blockchain to deploy assets cheaper, faster, and safer than ever before. Provenance Blockchain is one of the world’s largest blockchain networks with more than $9B in real-world financial asset value locked (TVL), and more than $30B in financial transactions supported. Learn more at Provenance.io.